Lifetime Annuities Provide Guaranteed Income in Retirement

One of the main objectives for most retirees is maximizing the amount of income they can safely take out of their portfolio to sustain their lifestyle. 

It's the one thing that makes everything else possible. Being able to enjoy time with grandchildren, take time out to golf or travel, secure funds if you need for long-term care — it all hinges on your ability to convert your retirement nest egg to an income that will last you and your spouse a lifetime.

Fortunately, there is a good way to secure a guaranteed retirement income by essentially creating one's own pension through a vehicle called a lifetime income annuity.

This product lets you take a lump sum that you contribute as a premium, and the insurance company converts it into a contract guaranteeing, in writing, a certain amount of income each month or each year, for as long as you, or you and one other individual (usually a spouse) shall live. Guaranteed.

Advantages of lifetime income annuities

The security of a lifetime income annuity may give you the confidence to seek greater returns with other parts of your portfolio, knowing that your basic monthly expenses are covered.

Lifetime income annuities also generally allow for a substantially higher steady monthly income than you can get from a bond or mutual fund portfolio alone, unless you spend down principal.

This is because of a concept called mortality credits. Essentially, those who die sooner than average don't need their income anymore, so it goes to those who live longer than average.

As a result, the lifetime income annuity can deliver a higher payout, on a guaranteed basis, than ordinary fixed annuities, CDs, money markets and income funds. In most cases, this payout is higher than that available from investment-grade bonds, though individual bonds can vary widely in terms of coupon payments and risk properties.

While annuities grow tax-deferred, withdrawals are taxed as ordinary income. Sometimes that applies only to the growth portion, not the whole withdrawal. As a result, only part of your income from a lifetime income annuity is subject to income tax. 

Lifetime income annuities also help get money out of your estate, potentially reducing estate tax liability.